China's Rapidly Evolving Economy
Trends and New Business Opportunities in Today’s China
In this edition of my newsletter, I discuss trends and new business opportunities in China’s rapidly evolving and maturing economy. As an emerging market economy matures, there is a relatively predictable sequence of economic developments. For example, large-scale construction of housing (like China has experienced in recent years) is typically followed by significant investment in furniture and consumer durable goods for individual homes.
Similarly, large-scale construction of basic infrastructure (roads, ports, rail lines and airports) is typically followed by significant public and private sector investment in related infrastructure (factories, office buildings and retail districts) and higher levels of related activities (rail and air travel).
In this newsletter, I discuss where China currently is in its economic development and describe a variety of trends and new business opportunities that typically emerge and develop at this stage in a country’s economic development. The trends and new business opportunities I describe are being further encouraged by a variety of new and ongoing policies at the country, provincial and city levels meant to strengthen, diversify and encourage the development of a more services- and consumer-orientated economy. As you can see from the list below, the variety of trends and new business opportunities is broad and wide-ranging.
Given where China currently is in its economic development, the following are areas of business opportunity that should experience significant growth in coming years:
Quality of Life Investments
With basic infrastructure (housing, roads, ports, high speed rail lines, airports) mostly in place in many parts of China, future public spending priorities should evolve to include higher levels of investment in quality of life areas including water treatment, food safety and environmental cleanup.
A number of factors will drive increased demand for global standard professional services in China. For example, with more and more China-based companies wishing to expand into markets outside of China, there will be demand legal, accounting and audit services to help them comply with legal and compliance requirements in other countries.
Emerging Brands and Brand Development
Alibaba, Huawei and Lenovo are examples of a growing list of China-based companies that are developing global brands. A variety of professional services will be required to help companies like these develop their brands and marketing for domestic and international markets.
Moving Up the Value Chain: Advanced Manufacturing Technologies, Robotics, Supply Chains
A number of manufacturing and design companies in China are making significant investments in technology and in people to move up the manufacturing value chain. For example, significant investments are being made in robotics and supply chain improvements. A number of factors are driving these investments, including rising wages, government policy and demographic trends. The average age of China’s workforce has gone up. A manufacturing trend to watch is the movement of certain types of manufacturing from the coasts of China to the interior, where wages are lower.
As China becomes an increasingly affluent country and personal incomes continue to rise, more money is being spent on increasingly sophisticated health care. Demographic trends will also drive increased spending on health care as the average age in China, like in many countries, becomes older.
Higher education is an area of significant new investment in China. China is a very education-focused society. Significant new investments in people and facilities are being made at a number of universities in China. These investments are bearing fruit, as reflected, for example, in the rising ranking of China business schools in global rankings.
Entertainment and the Movie Industry
As I discuss in Episode #14 of my podcast, China currently has the second largest movie market in the world and could surpass North America’s in the next few years. As members of China’s expanding middle class, now numbering in the hundreds of millions of people, have more and more discretionary income to spend, they are spending it on a variety of entertainment options, including movies. A movie theater building boom is also powering China’s box office growth.
Domestic and International Travel and Tourism
Significant investment in high speed rail lines in China has helped enable a significant increase in domestic travel and tourism in China. International tourism is also expanding quickly. For example, the number of international flights taken during the recent Spring Festival holiday was up significantly from a year earlier. To further support these trends, large new airports are currently being built in Beijing, Xiamen and a number of additional cities.
As I discuss in Episode #13 of my podcast, fast food is a significant growth market in China. Significant new investment by global brands has recently been announced for new restaurants in third-tier and fourth-tier cities. A number of highly competitive domestic fast food chains have been launched and scaled up in China in recent years. Consumers in China are becoming increasingly quality and health conscious.